TAX – PERSONAL only be taxed on UK source income or capital gains on the disposal of certain types of UK assets (e.g. real estate). Those who are resident but not domiciled or deemed domiciled in the UK can elect into the torturously complex but often advantageous remittance basis rules.
INTRODUCTION Over recent years, the UK tax regime as it applies to expatriates has been rather turbulent, as successive Governments have overhauled key parts of the tax system as it affects expatriates. Indeed, over the past few years, this article has focused heavily on wide ranging changes to the domicile and remittance basis rules announced in 2015. This year, we go back to basics (if you can call any of these rules ‘basic’) and look at tax residence.
RESIDENCE AND THE STATUTORY RESIDENCE TEST The SRT came into effect in 2013, and was an attempt to provide an unambiguous framework for determining a person’s residence status in the UK, as the Government at the time felt that the previous system contained too much uncertainty, resulting in opportunities for abuse. It is fair to say that, to a reasonable extent, the SRT does succeed in removing much of the uncertainty that surrounded the determination of residence for tax purposes. However, in doing so, it also added a great deal of complexity to the matter. The SRT works by setting out a series of tests to be followed in order until a definitive conclusion can be reached.
THE SCOPE OF UK TAXATION The scope of UK income tax, capital gains tax, and inheritance tax is based on a person’s residence and domicile status, as well as on the source of income or capital gains, and for inheritance tax purposes the situs of assets. Residence under UK tax law is determined by reference to a complex set of criteria known as the “Statutory Residence Test” (or “SRT”). Essentially, this works to treat a person as resident in the UK based on the extent of their connections to the UK and the amount of time that the person spends in the UK. Domicile is a concept of UK general law. A person’s domicile is generally the territory which that person considers to be their permanent home. Expatriates who have been in the UK for several years should also be aware of the concept of “deemed domicile”. Broadly speaking, this means that any person who has been resident in the UK at any point in fifteen out of the previous twenty tax years will be treated as domiciled in the UK for income tax, capital gains tax, and inheritance tax purposes. For an expatriate in the UK, understanding their residence and domicile status is important to ensure that they are able to comply with the tax obligations imposed on them, and to allow them to understand the opportunities that may be available. A person who is resident and domiciled in the UK is generally taxed in the UK on their worldwide income and capital gains, whereas someone who is not UK resident can usually
STEP 1 – THE FIRST AUTOMATIC UK TEST (THE ”183 DAY RULE”) The first, and perhaps most straightforward of these tests, specifies that a person will be considered resident in the UK for the tax year in question if that person has spent 183 days or more in the UK during that year. For the purposes of this test (and for that matter, all of the other tests in the SRT which make reference to days spent in the UK), a person is considered to have spent a day in the UK if they are present here at the end of the day (i.e. at midnight on that day). As with all rules, this one does have exceptions which can impact a person’s day count. One such exception is that being present at midnight does not count as a day in the UK if the person is merely in transit between two other locations. This means that you could arrive in the UK in the evening, check into a hotel near the airport, and leave the UK the following morning without being considered to have spent a day 43
